The stunning news of Donald Trump becoming the US president-elect has taken the world by surprise and unleashed rampant speculation as to future developments on all fronts. As the dust begins to settle, we’ve taken a look at what this could mean for the future of crowd finance (equity, debt, rewards, philanthropy and more) in the US.
The reason online (‘crowd’) marketplaces for finance work is that there is unmet demand for finance and a willing supply of capital that is dissatisfied with traditional options for deploying finance. Anything that changes this balance will have a potentially huge impact on the industry - either positively or negatively.
Based on our expertise and having been inside the crowd finance world for several years, here are the four factors we will watch out for in the coming months:
Power to the masses
The continuing sentiment that the masses have insufficient voice, and need to challenge the establishment may lie behind the rise of Donald Trump, however it also has a role to play in finance. Popular belief in the need to challenge institutional hegemony provides momentum for a move away from established institutions and towards individual control. Crowd finance is one way this can be achieved by the ordinary man in the street, and so is likely to benefit from people choosing to ‘opt out’ of traditional structures.
Money moves with confidence when there is economic certainty, and there simply isn’t certainty at the moment. There’s a palpable sense of nervousness as Trump and his future administration are unknown and unwelcome quantities. International relationships, trade deals, major agreements, and political stability are all likely affected. If this political uncertainty transmits to the wider financial system, which it almost certainly will, it could reduce the appetite for investment. Any tightening of purse strings is not great news for crowd finance marketplaces themselves, nor for fintech at large where investment into platforms could become trickier to secure.
An unhealthy healthy interest?
If the new administration follows through with its promises to repeal the Patient Protection and Affordable Care Act (PPACA), known as Obamacare, then we could see more demand for financial support with medical expenses being sought over platforms to fill the gap. There is already significant use of crowd finance sites to support medical and care expenses, so this is a potential trend we will watch out for with interest.
A taxing subject
Lowering taxes for businesses may help spur more long-term corporate innovation and investment, which could theoretically support acquisitions or new platform launches. However, this depends upon organisations taking the initiative to make the most of any taxation changes. If changes are made, it could simply mean a lower tax bill for businesses and contracting of spend, rather than incentivising innovative recycling of surplus funds. This could be neutral for crowd finance as the big players don’t take the opportunity to challenge the disruptors.
In conclusion, the US has done well in establishing active markets for debt and rewards based crowd finance, however they have struggled when it comes to equity. This is primarily the result of equity platforms being held back by regulatory changes, and with substantial political upheaval on the horizon, and a new SEC chief to arrive, it is unclear whether there be much appetite to develop this fledgeling sector, or whether there will be a slackening of rules as a general principle.
Our sense is that US crowd finance will continue its current course, however the eyes of the world will slowly turn away, both to Asia as an innovative powerhouse for new industry developments, and to Europe which will continue to develop its leading position.